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10 Reasons for American Internet Companies’ Failure in China

While we regard eBay, Amazon, Yahoo!, Google and other American websites as successful case studies internationally, what we have seen in China is just the opposite. American websites in China are basically the model of failure. It can be said that their Chinese rivals’ success are built on abandoning the American experiences and practices. In my opinion, American websites’ failure in China is due to their operating concepts. They have good strategies, the most intelligent people, the most money, the best technologies, but that does not change the way of doing things. ecommerce recruitment

This is the fatal weakness of American website companies in China, but so far few of them have realised this point. Among those people who operate American websites, senior executives are from HK and Taiwan, while employees are white-collar workers in Shanghai high-rises. All they know about China is the CBD of Shanghai, therefore all practices include product design, website style and target audience are for white-collar workers in Shanghai and Fortune 500 companies. They will never consider demand from general public and small to medium companies.

Their upbringing, interest and vision make them exclude the public at heart. American website employees are deeply disdainful of those guys in Internet cafes, those thousands of Internet users in small cities and towns all over China (note that these 2 groups account for more than half of the Chinese internet population). Superior American website white collars not only dislike them, but also really hate them.

They only know Gmail, not 163(Netease) mailbox; only MSN, never use QQ(Tencent), in order to show their superiority. At heart, they feel that they would rather let the websites close, than building a website that meets the public demand with no “taste”.

If you want to be a mainstream Chinese website, not meeting the public demand is doomed to fail.

2. To be forgotten VS To be hated

The former is the philosophy of American websites, the latter is the philosophy of Chinese internet entrepreneurs.

While American websites fear a single piece of negative news, Chinese websites fear there is no negative news. Being hated by thousands of people is the highest realm of Internet promotion.

American website staff has 10 times more salary than their Chinese website counterparts, hence being afraid of losing their jobs. They would rather deliver no performance, than taking risks and making mistakes. They are low-key, conservative and cautious, everyone is polite and educated, but with no competitive mentality. As a result, they are beaten to the ground by their sharp and fresh Chinese rivals.

Look at the offensive stance of Ma Yun (founder of China’s biggest B2B website, Alibaba.com) over eBay. While Ma’s Taobao.com was still far behind eBay in China, he had declared Taobao the biggest in China. The PR executive from eBay China could only responded like “we only focus on user experience”. Ma even said that “I couldn’t see a competitor even using a binocular”. eBay staff were afraid of making mistakes and saying the wrong thing, thus using excuses like “US listed companies cannot make discretionary comments”.

3. Long lasting war VS Quickfire actions

American websites always have long-term planning and spend loads of money on useless marketing research. They plan strategies and budgets for the next few years, and they are too rigid to adjust easily. They can have a lot of money and talent at the beginning, and slowly plan and develop things. Unfortunately, websites are not like other industries, where many multinationals adopt a strategy of making losses for 10 years and then turning a profit. This is not working in the Internet industry, in less than 10 years Yahoo! and eBay had already failed in China. So instead of doing it slowly, it would be better to fire up at the first beginning.

The Chinese websites are always seeking quick success, so their idea is to do things simply and quickly. Ma Yun could organize “death squads” to build up Taobao in closed offices. Everything was for the purpose of being fast, focusing on small step sprints, making improvements along with mistakes. American websites could do perfect planning and budgeting, but could not approve anything easily if it is not in the budget. Such way of needing American headquarters’ approval for everything is domed to fail.

4. Means important VS Objectives important

Jack Ma’s management style is said to be rather rogue. He set a goal, such as website traffic or registration volume, and let his team work towards it using whatever means. As long as the goal is reached, people can be rewarded greatly. Therefore their teams dared to use all the available tactics, including plug-in, bundling, promoting unethical websites, etc. The gospel of many Chinese websites is “means never matter, objectives are everything”, as long as it is legal.

American websites have so many performance criteria and rules. They first need to maintain their high end brand images, protect their multinational faces, and possess noble professionalism. Only under these prerequisites can they pursue various short and long term business objectives.

5. Being users’ saviour VS Meeting users’ demand

Perhaps the only thing worth learning from American websites in China is that they have better focus on user experience. But this is usually overshot, too considerate for users, hence restricting self-development. Chinese users sometimes don’t need to be treated too friendly and too considerately. They will make their own choice, not the other way around.

Do you know why ICQ failed in the Chinese market and exited? American people really care about protecting users’ privacy. For ICQ’s Instant Messaging product in China, logged-in users cannot retrieve their prior conversation history from another computer. This could certainly protect users’ privacy, but it is more suitable for a handful of Internet users at home, instead of the vast majority of Internet café customers. ICQ probably still had no idea about this when they were withdrawing from Chinese market.

Ma Huateng, founder of Chinese Instant Messaging product Tencent QQ, was merely the technical contact person working for ICQ’s Chinese partner company at that time. But he learned Instant Messaging technology as well as the preference of Internet café customers in China (American website employees would never look at Internet cafes). After Ma corrected the pitfall, which is the privacy issue only cared about by middle-class white collars, he subsequently kicked ICQ out of China.

6, Being magnificent VS Being popular

American websites’ promotion in China is always magnificent but unpopular, and they amazingly share a similar mentality when it comes to marketing. They employ advertising agencies to design beautiful posters displayed in subway stations and bus stops. They also design online ads that target the minority white collars, spend lots of money advertising on 3 major internet portals, and pay for expensive Google keywords (not Baidu keywords, American website employees only like Google and MSN). As a result, people applauded their ads, but never visited their websites. User acquisition costs almost amounted to 1000 yuan (about US$130) per visitor. Despite minimal traffic growth, they would still claim “brand building, brand awareness or brand image” as excuses.

But Chinese rival websites always put traffic as a priority, believing “a penny brings a visitor” when it comes to website promotion. They don’t care who the visitor is, as long as this person visits their websites. Real traffic numbers are pragmatic brand promotions, those empty and useless brand images cannot turn into profits. The sole purpose of promotion is to bring in visitors, and it’s up to people to decide the merit of the products. So that is the leverage.

7. Passive promoting VS Active pulling

American style marketing emphasises brand awareness, such as outdoor posters, which is hard to activate the market in China. Pragmatic Chinese competitors would rarely use advertisements simply to establish brand images. They like engaging in high-profile “pull” propagandas, not only producing direct benefit, but also improve the public awareness, even forcing people to pay attention to.

Mr. Gong Wenxiang, a Chinese brands expert, has compared the online advertisements of Taobao and eBay. He commented that they both used banners to display their featured products with similar ad costs, but Taobao’s result is 10 times eBay’s.

eBay displayed things like iPods and Zippos, which are targeting high end customers. General public with no English ability could not understand it, nor could they afford to buy those things.

On the other hand, Taobao advertised eye-catching products like sexy underwear, and exciting weblinks constantly popping up. People simply cannot get away from them.

American website employees may well know about this, but their “turtle (overseas educated)” mindsets cannot accept it: I would rather spend a billion yuan on an elegant campaign to bring in a million visitors, than spending a million yuan on a vulgar campaign to bring in a billion visitors.

So when American websites’ marketing result is only one tenth of their Chinese counterparts’, failure is inevitable.

8. Email, msn communication VS Telephone, face-to-face communication

90% of the communication means in American website companies are emails and MSN, and these people are all happy to communicate in English. One problem which could have been solved by one phone call would instead take 10 email exchanges. Therefore emails and MSN are usually least ineffective communication means.

When Zhou Hongyi (founder of Chinese network software 3721.com) took over Yahoo! China business, those two communication cultural conflicts were very obvious. All the original Yahoo! China employees used emails to communicate with clients and business partners. They would never visit clients and entertain them, regarding this practice vulgar. After Zhou sacked those employees who only know email communications, the business began to turn around.

It is said that in American website company meetings in China, as long as there is one foreign staff attending, all other present 20 or 30 Chinese employees have to speak English. This is extremely unpragmatic, as they don’t realise they are doing Chinese business and language must be in Chinese.